Farmmi: A Chinese Agriculture Brand Set to Capitalize on New Wellness Trends

Consumer Staples Author: Skye Lan Editor: Luke Sheehan, Zhiqing Chen Aug 02, 2021 10:47 AM (GMT+8)

Striving to vertically integrate its business, the company has been preparing for a major boost.


● Farmmi has a long record of unstable financial performance.

● The company's solid supply chain system and business model can integrate online and offline platforms and trigger potential future growth.

● Along with the public's increasing health awareness, Farmmi can seize more opportunities to build extensive global networks and explore new products, like fungi-based snacks.

● The share price of the company is currently hovering at low levels, which might provide investment opportunities in the middle-term.

Farmmi (FAMI:NASDAQ) is a Chinese agriculture products provider that mainly processes and sells, as of July 2021, four different kinds of products: Shiitake mushrooms, wood ear (or Mu Er) mushrooms, other edible fungi and other packaged dried fungi. The company runs both an e-commerce platform and offline stores. Founded in 2003 and headquartered in a small city in east China, Farmmi is experienced in forming alliances with local family farms that allow the company to offer products to restaurants, cafeterias, local specialty stores, as well as through distributors.

Here, we analyze this small share opportunity and discuss the company's potential.

Quality – volatile profitability and cash flow generation

Farmmi's financials have lately been somewhat unstable. The revenue has been growing slowly – and even declined in 2020; operating income peaked in 2018 and has kept declining since. Farmmi's net income has also shown high volatility. Since 2015, the company has been reporting unstable and negative operating cash flows. Basically, it delivered unfavorable financials all the way after its IPO in February 2018.


What is more, the company's capital expenditure kept growing, but the limited value has been generated, resulting in a downward-moving return on capital.

Growth – optimistic trends and industry dividends

Despite Farmmi underperforming in the past years, investors should not be overly concerned about the lasting effects on the company's future development. We believe the company has a more positive side on financial growth and cash flow stability that will reflect in its future growth.

As mushrooms and fungi are categorized as 'wellness food,' Farmmi focuses on such products, exploring overseas markets. Now, 94% of the company's revenue is generated domestically, while 6% comes from international markets, including the United States, Japan, Canada and the Middle East. An insider has informed EqualOcean that Farmmi's top executives have recently been actively building networks and seeking major brand cooperation to further expand in the North American market this year. By May 2021, Farmmi had raised USD 7.4 million of post-IPO financing to fund its business expansion.

What is more, with the decreasing price of raw materials and improving cost control capabilities, Farmmi is expected to report better operating margins. So far, the figures have never fallen below the peer average level.


Unlike many traditional agriculture producers in the space, Farmmi has been utilizing trendy tools, like web-based products, to ensure its future competitiveness. The recently raised funds are leveraged by the company to enhance its e-commerce capabilities, IT and supply chain systems. These capital expenditures and the integration of online and offline business models may generate more income for the company.

The entire industry will release more dividends for Farmmi as well. The Chinese fungi market has been constantly growing since the noughties, providing growth momentum for Farmmi. The health and wellness trend has also expanded the market capacity for mushroom and fungi-based snacks, which Farmmi is building its future strategy around.


For most food companies, it is almost impossible to survive for over ten years without a solid supply chain system, technology support and cost and risk management abilities. Paying close attention to these aspects, Farmmi is poised to ride the global wellness trend with the increasing fungi consumption.

Price Momentum – upward

The stock of Farmmi seems to be currently undervalued. Without any warning signs in its financial performance, the share price has been going down since it went public in 2018, reached the lowest level ever.


As a small Chinese food brand, Farmmi might have less recognition among global investors, and we expect this situation to continue in the near future. However, the big picture appears brighter, as the company its making progress in cost control, harnessing technology and has a lot of room for development – both geographically and scope-wise.